Topic 3 Strategy and Strategic Management Foleo Fones CHAPTER 3 The 2000s Over the next decade, Foleo Enterprises Pty Ltd grew exponentially, and whilst the increased demand for their Australian-made phones was welcome, it was unexpected and unplanned. James and Leon tried to keep ahead of the growth in their business by borrowing heavily from their bank, employing more staff and introducing new models of phones, however they seemed to be at the mercy of circumstances, rather than being able to take a proactive and controlled approach. Consequently, the boys were constantly playing catch up. They had good ideas in response to the changes in their industry and implemented them, however there appeared to be no strategic plan in place for the longterm. One such example of Foleo playing catch-up, was their dealings with the telecommunications (or telco) providers. Since the telcos became Foleos major customers (not only Telstra, but now also Optus, Virgin, Vodaphone, etc.), the profit margins they were achieving on their phones were not nearly as high as those generated by selling directly to the consumer. Although the business remained profitable, due to the volume of sales being processed through the telco providers, James and Leon were becoming increasingly concerned about the downward pressure on price their major customers were exerting on them. Foleo Accessories: By early 2002, the two entrepreneurs were looking for ways to mitigate this problem of reduced profitability and recognised an opportunity to gain direct access to the consumer. Again, they invested time and resources into R&D to investigate the demand for, and the feasibility of producing their own accessories for the Foleo Fones. Leon set about looking for the types of products that could be designed for their phones and by January 2003, had developed an entire range of prototypes for leather and plastic cases, along with headphones, speakers, replacement batteries, cables, car chargers and cradles, etc, all customised for the Foleo Fone. James, with the assistance of the CFO, analysed the costs and expected revenues associated with introducing these accessories as part of Foleos offering to the market, and found that the numbers looked quite favourable. The primary production plant in Western Sydney, was redesigned to accommodate the manufacture of these products and by April of 2003, a stock of Foleo Accessories was ready to be marketed and sold. The boys knew that if they distributed these accessories for their phones through the telco providers, then they would face the same problem with price and profit margins as the Foleo Fones, so James and Leon negotiated terms with these major customers to sell their accessories from Foleo-owned Kiosks across Australia, direct to the consumer. Whilst the telco providers were initially not happy about this and viewed this move as a competitive threat to their business, the boys were able to negotiate a deal with each of them that satisfied all parties. Foleo Enterprises would supply a small range of accessories to the telco providers at retail price, which meant that, if they wished to do so, they could put a small mark-up on the items if the consumer wanted to buy a complete bundle of a Foleo Fone and the accessories in the one store. This accessory business grew quickly and by 2004, the Foleo empire now had a business unit solely dedicated to managing the retailing of Foleo Fones accessories (FOLEO ACCESSORIES). There were Foleo Kiosks set up in all major cities in Australia and pop-up kiosks were established in shopping centres and marketplaces. In time, Foleo Accessories developed on online presence and web-based sales accounted for almost one quarter of sales by 2015. The Foleo Accessories business quickly became a stable and reliable source of profits for Foleo Enterprises, as the accessories required minimal ongoing marketing, development or support. Foleo SliFone: After the arrival of the smartphone technology by Apple in 2007 (the iPhone) and not long after, the introduction of Samsungs Galaxy, the landscape of Foleo Fones external environment was again on the move. James and Leon knew that in order for Foleo Fones to remain competitive, it had to again adapt to the technological advancements in their industry, so they began the process of designing their own version of the smartphone. Author: Julie Fell 2 This technological shift in the industry could have meant the end of Foleo Fones, but instead, it opened up a world of opportunities for James and Leon. After extensive R&D into the new technology, market research and dozens of prototypes, Foleo Fones was finally able to launch their new offering to the smartphone market, the SliFone, in early 2009. The launch of this new product also enabled Foleo Accessories to develop an entire range of new and different accessories to suit the newly-released SliFone. Again, the boys listened to their customers they heard what their customers were asking for during their market research workshops and adopted as many of the suggestions they could into their prototypes. The product they eventually launched was light in weight but robust enough to withstand the normal bumps and drops that mobile phones are subject to. The screen was as big as the technology would allow and the navigation mimicked the swipes of the offerings of the big players in the industry. Whilst launching products later than your competitors is not ideal, Foleo Fones found that there were some advantages. They heard what Apple and Samsung got right and what they got wrong for Australians, allowing Leon to customise a number of different SliFone models to the Australian market. They were able to produce the phones for a significantly lower costs than their big competitors, because they were supplying only to the local market and did not have the same level of marketing and distribution costs. Of course, Foleo Fones were not able to charge the premium price that Apple and Samsungs brand allowed them to, so this also meant that their price was very competitive. Foleo Fones found that customer retention rates were extremely high so many of the customers who had bought previous versions of their phones were trusting the company again for their next generation of phone.